Mumbai: As inflation zooms past 11%, setting 13-year highs and spooking consumers and advertisers, it is turning out to be bad news for the Rs20,000 crore-plus annual Indian advertising business, which has been growing at a robust 20% each year for several years now.
Some big-spending categories, such as financial services and products, aviation, real estate and automobiles, are already slowing ad spends and several media specialists tell Mint that they fear the real impact across more categories could come by the fourth quarter and extend into 2009.
More than macroeconomic issues, a fear psychosis is weighing down consumer sentiment and starting to hit advertiser morale and ad spends.
This means advertisers will start turning the screws on media buyers to buy more for less; to negotiate much harder with media owners, especially in the face of still rising ad rates, and spend more on non-traditional media such as retailer-level advertising, direct mailers, online and on relationship marketing.
“The reaction to a slowdown and an inflationary future, both by consumers and businesses, is as much driven by psychology as by reality,” says Ravi Kiran, CEO of Starcom, South-East Asia and South Asia. “The voice of marketing within a business tends to succumb to that of finance and procurement, particularly in companies without a strong marketing culture. Weak CEOs listen more to the cost management recommendations rather than brand-building recommendations, particularly when they are under observation by stock market analysts and activist investors.”
Shashi Sinha, CEO of Lodestar Universal, predicts that credit driven sectors, such as realty, automobiles, financial and insurance will be more impacted.
“India operates more on sentiment,” he says. “On the macro level, among the big spenders, automobiles would have at least a 10% drop in ad spends, and financial products and services by at least 20%. Airways too are pulling back a lot. A slowdown will happen and overall ad growth will be 8-10% by year end and not 20% as usual.”
Sinha says that as the year goes by, the ad growth engine will slow. His forecast: The first affected are going to be financial products followed by durables and cars. If early elections are called, ad spending will slow across the board, he says.
CEO of Lodestar Universal Shashi Sinha predicts credit-driven sectors will be more impacted.
Highly competitive sectors, such as telecom, are, however, spending significantly on advertising and this could grow by 25-30% this year, adds Sinha.
Lynn D’Souza, chairman and CEO, Lintas Media Group, agrees that inflationary times do lead to “consumer depression” but, reckons that consumer confidence could use a booster and that advertisers often tend to respond with more promotional offers. She notes that when the stock market suffered a setback early this year, many mutual funds and initial public offers held back while insurance companies continued to advertise.
Her forecast for the year: Ad growth will slow to 14-15% by end of 2008, cushioned by already mega spending on cricket, but the real hit could show next year with escalating inputs costs.
“I believe that high investment categories, such as expensive real estate, travel, automotive, some kinds of luxury goods, may pull back a bit, but the telecom sector, the FMCG (fast moving consumer goods) sector, will continue to spend megabucks,” she says.
Chandradeep Mitra, president of Mudra Max, says that for most advertisers, top lines and bottom lines are beginning to feel the pressure. His reading: A few “direct impact” categories are already bleeding due to macroeconomic factors apart from inflation. Thus airlines and travel portals are seeing shrinking business due to high fuel costs and airline and travel portal ad spending has already come down by 20-25% compared with last year. Similarly, oil marketers such as Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd have cut advertising as their operating losses mount.
“The real estate sector is getting jittery, with realty prices unstable, cement prices high, the stock market down, and consumers on a wait-and-watch mode,” says Mitra. “The sectors that are bleeding the most, and have immediately cut advertising, are the ones whose markets and bottom lines have got directly impacted by rising input costs.”
The critical period, says Mitra, will be the festival season. If, by then, inflation has plateaued, the monsoon is good, stock and realty markets have stabilized, then most categories can hope to stick to their annual targets and leave their marketing plans, including ad and media budgets, largely unaffected, he adds.
Meanwhile, Kiran of Starcom says advertising has another key role to play.
“Advertising has a major influence on consumer confidence,” he notes. “If advertising starts showing too much of gloom, consumers will get even more cautious and gloom will be inevitable. Mature marketers understand this too well. In fact, just this Thursday,Procter and Gamble Co. chairman and CEO A.G. Lafley has cautioned against spreading ‘excessive negativism’. The world has weathered many crises in our living memory—the Asian financial crisis of the late 1990s, 9/11, the dot-com crash of 2001, the 2002 stock market downturn and the SARS crisis.”
Inflation will impact both media buying and planning. Lodestar’s Sinha, for one, says that while spending is not coming down yet, they are noticing clients are looking at smaller durations of commercials.
Also, there are early conversations on frequency vs reach and what should be sacrificed with some big players looking at reach-based media plans instead of high frequency of advertising.
In all, Mudra’s Mitra says there will be pressure on media planners to optimize plans, consider more cost-effective markets, periods and media, plan only for critical purchase periods.
“There will be pressure on media buyers to negotiate better deals, renegotiate old deals, seek value-adds,” he said. “A few may take measures such as postponing/shortening campaigns, focusing on fewer markets, using smaller/shorter ad sizes, etc., in order to stretch their limited media budgets. These are likely in the next two-three months if consumer demand and sentiment across most categories dip.”